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Supply and demand... If you want an event that produce a change in the value of a currency, just look at the ruble. As Russia, gets more and more isolated and inflation spins out of control the ruble lose its value against other currencies.


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In the Merton jump diffusion model, the stock price process consists of a continuous part and a discrete part (this one represents the jumps). While deriving the PDE for the riskless portfolio and imposing the riskless evolution, the discrete part can't be instantaneously hedged. In fact, you can assume that the effects of jumps can be nullified on average, ...



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